The Bayh-Dole Act of 1980, the federal law that jumpstarted technology transfer into a $2 billion-plus industry, faces its severest test in the patent dispute pitting Stanford University against Roche Molecular Systems. The case exposed the law’s failure to ensure that researchers and other inventors properly protect their intellectual property rights in ways that do not harm the universities that employ them or the government that funds them.

Chief Justice John Roberts addressed that failure head-on during oral arguments heard on February 28 for the Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems Inc. et. al case. “Is there a reason that the federal government can’t just say, ‘From now on we’re not going to give any money to Stanford or anybody else until they have an agreement making clear that the inventor is going to ensure that title rests with the university, which then triggers the Bayh-Dole Act?’” Chief Justice Roberts asked, not so rhetorically.

At issue in Stanford v. Roche is ownership of three U.S. patents for a PCR-based test kit to detect and quantify levels of HIV in the blood. The PCR method was developed by Cetus, which was later acquired by Roche. The kit, however, was developed by Mark Holodniy, M.D., a Stanford researcher, while working as a visitor at Cetus with NIH funding secured by the university. Upon returning to Stanford, Dr. Holodniy and two researchers carried out federally funded clinical trials of the PCR kit.

These studies resulted in the granting of the patents to the university. While Stanford held the patents, Roche commercialized the kit application without coming to terms with the university. The firm has sold the PCR-based HIV kits since 1996.

Who Owes What

Stanford demanded Roche enter into a licensing agreement and pay royalties. The pharma giant refused, and Stanford sued Roche in 2005, estimating that it was owed $250 million in royalties. No accounting for additional royalties since then has taken place. That won’t happen unless Stanford persuades the Supreme Court that it owns the patents and that Roche and other third parties are required to pay royalties, Patrick H. Dunkley, senior university counsel, told GEN.

Under Stanford’s patent policy, he explained, the university sets a royalty rate, and the Office of Technology Licensing taking 15% of net royalty income for administrative costs. The remainder is divided equally between the school, department, and inventors responsible for the discovery.

Jeffrey H. Kinrich, a managing principal of Analysis Group who represents Roche, said through a spokesperson that neither he nor Roche are discussing the case publicly given the potential for its return to trial. The consultancy prepared a report rebutting Stanford’s claim that it was entitled to $250 million at the time the original lawsuit was filed in 2005. According to a summary of the report on the consultancy’s website, Stanford offered to license the patents at issue at substantially lower royalty rates during talks with Roche before the lawsuit.

Once the suit was filed, the summary continued, Stanford suggested a royalty rate for a single PCR-based blood test method covered by one of the patents “that was substantially higher than the amount Roche receives from licensing its entire portfolio of PCR-rated patents.” Sanford has countered those arguments, Dunkley said, adding that details and the data underlying them have been kept from public disclosure under a protective order.

He Said/She Said

Stanford maintains that it owns the patents because Bayh-Dole awards patent ownership first to universities and other entities receiving federal funding, then to the federal government, and finally to inventors. Under the measure, universities were granted top-priority in patent ownership under the idea that they would then commercialize their discoveries for the benefit of the public.

Roche contends that it can apply the patents without paying royalties to Stanford or Dr. Holodniy because he signed away his inventor rights to Cetus. “The whole thing that was wrong here is that Stanford, instead of drafting the agreement as ‘I agree to assign,’ should have said ‘I hereby assign,’ and then there would be no case,” pointed out Justice Ruth Bader Ginsburg during the oral arguments.

The Supreme Court is expected to decide the case by early summer. Its last scheduled meeting day of the term is a June 27 nonargument session.

Stanford, U.S. Acting Solicitor General Neal Katyal, and several academic groups along with Bayh-Dole’s co-author, former Senator Birch Bayh, argue that the ability of universities to commercialize discoveries in the life sciences and other fields under Bayh-Dole is being threatened. “The issues presented here have widespread and profound implications for billions of dollars provided annually for government-sponsored research throughout the nation,” Stanford argued in its reply brief.

Stanford and its allies argued that their tech transfer efforts would be damaged significantly if the Supreme Court were to side with Roche, as the U.S. Court of Appeals for the Federal Circuit did in 2009. Roche disagreed, stating in its brief for respondents, filed in January, “Congress did not enact the Bayh-Dole Act to create a new class of nonpracticing entities to tax commercial development by American industry and increase expenses to patients and the healthcare system.”

Siding with Roche are a coalition of pharma companies, the Intellectual Property Owners Association, and the trade groups for the pharmaceutical and biotechnology industries. They say Stanford’s interpretation of Bayh-Dole in this case would upend the longstanding legal principle that the original owner of an invention is its inventor. “Absent a clear statement from Congress requiring such upheaval, which simply does not exist, the Court should maintain the status quo, which has served the interests of all affected parties and the nation’s economy well.”

Protecting Patents

John C. Vaughn, Ph.D., evp of the Association of American Universities, told GEN that a decision upholding the federal circuit’s interpretation of Bayh-Dole would hamper university efforts to license their patents. “It would be hard for us to verify ownership of patent rights. That would certainly complicate our ability to license those patents to the commercial sector for development.

“The university would have no way of knowing whether some faculty inventor had made some other advertent or inadvertent prior commitment that precluded the university being able to warrant clear title,” Dr. Vaughn pointed out.

That complication, he contended, cannot be cleared up simply through word changes in its agreements with inventors. “Number one, some unknown number of circumstances is extant out there now where some undisclosed prior commitment is floating around and vulnerable to this warring contract interpretation,” Dr. Vaughn said.

“Number two, Stanford and a number of other universities used the wording they had in their standard agreements with faculty for years. That seemed to be fine and chronically preceded the visitor confidentiality agreements that Dr. Holodniy had signed with Cetus. If you change the Cetus language to ‘I do hereby assign’ there’s no real assurance that some court won’t find some future different wording stronger yet,” Dr. Vaughn added.

Risk to Tech Transfer

The nation’s largest university tech transfer operation by research expenditure, the 10-campus University of California (UC) system, told GEN it generated $125.3 million in license income from discoveries during the 2010 academic year. UC spent almost $4.749 billion on research that year.

During 2009, according to the Association of University Technology Managers (AUTM), UC income was $103.1 million, and research spending was $4.687 billion; AUTM’s 2010 figures for all member universities will be released later this year; AUTM has more than 3,600 members. In 2009, the member universities generated $2.3 billion in licensing income and spent $53.9 billion on research.

William T. Tucker, Ph.D., executive director, Innovation Alliances and Services for the University of California, President’s Office, pointed out to GEN that current income reflects projects completed 10 or more years ago.

“Our concern is that we will just get less stuff out into the market because no one will be willing to take a risk on the patent as much,” Dr. Tucker stated. “The money’s not the driving issue. It’s nice, but the reality is our job is to get technology out into the hands of the biotechnology industry.”

Consequences

Barbara A. Fiacco, a partner with the law firm Foley Hoag, who has defended pharmaceutical and other life sciences clients, said the case has already prompted universities to re-examine their employment agreements with researchers. Robin L. Rasor, incoming president of AUTM and director of licensing for the University of Michigan’s Office of Technology Transfer, told GEN that her university has tightened the language of its invention report forms from “I will assign” to “I hereby assign.”

“Most of the universities have been watching this, and looking at, ‘What are our practices? What can we do with this?’ And we’ve also spent time working more and making sure that our inventors sign the invention disclosure form,” Rasor says. That form assigns inventors’ rights “and all resulting patents and copyrights to the Regents of the University of Michigan.”

“You could make it about Bayh-Dole. But we see it, very much so, as universities and their partners needing clear title to the inventions that are made at universities,” Rasor added. “We don’t know yet, obviously, what the results are going to be.”

“Where the case will have the biggest implications,” expects Fiacco, “will be where the water’s already under the bridge, where the patent applications are already filed, where the professors long ago signed their employment agreements with the universities, and it’s what has already happened.”

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